Amazon recently rolled out a new discount feature on its website, which grants the retailing giant better control over the price points set by its third-party sellers. Continuing to compete aggressively with Walmart, Target, and other big box retailers on price, Amazon has added a new, extended discount, paid for by Amazon itself, that can apply to certain items at the moment consumers commit to their purchases. Such additional discounts typically are good news for consumers, but this move could prove unpopular and problematic for among the third-party sellers that partner with Amazon. Considering that 70 percent of the e-commerce site’s merchandise revenues come from such third-party sellers, the unintended consequences of this new practice may constitute a rare misstep by Amazon that could sour some of its existing and potential vendor relationships.

At first glance, the new Amazon-provided discount seems good for vendors. They continue to receive the full asking price for the items they sell, and Amazon absorbs the cost difference associated with the additional discount. Vendors also benefit from Amazon’s sophisticated software, which tracks prices for popular items available on other retailers’ websites, so that they can ensure that the price on Amazon is the lowest available, which in turn drives additional sales.

However, many third-party sellers also report that the Amazon-provided discounts get applied without any prior notification. The new, lower price point then may cause the vendor to unknowingly or unexpectedly violate existing seller agreements with other retailers, which can jeopardize those relationships for future sales—or even expose the vendor to the risk of litigation. Selling agreements often contain specific price floors for goods sold by multiple retailers, to help ensure that the vendor can compete effectively in the marketplace. Furthermore, a large spike in sales caused by a lower price might unexpectedly deplete available stock, causing popular items to sell out sooner than expected, which then results in unhappy consumers and sometimes even costly additional production. Certain high-end companies also object to the practice of the Amazon-provided discounts, in the belief that such discounts undermine the perceived value and carefully cultivated image of their brand.

In reacting to these concerns raised by third-party sellers, Amazon mostly emphasizes that all vendors have the opportunity to opt out of the new discount program. However, many third-party sellers complain that the damage has already been done. Without prior notice of the new discount program or awareness that they had the right to opt out, many vendors already cite the additional costs they have incurred, related to the violations of their existing seller agreements. They also assert that the opt-out feature is confusing and difficult to implement.

In its effort to put the consumer first and deliver a competitive price, it seems that Amazon may have complicated its important partnerships with third-party sellers. It will need to work hard to find a way to implement the discount, so that it can remain competitive on price, while still respecting the varied needs and requirements of independent third-party sellers who necessarily must continue to exhibit divided loyalty across multiple vendors.

Discussion Questions: 

1. What is Amazon doing to enable its marketplace sellers to achieve a more competitive position?
2. What are the advantages and disadvantages of such a move?

Source: George Anderson, “Amazon Undercuts Rivals by Adding Discounts to Marketplace Seller Prices,” Retail Wire, November 6, 2017; Laura Stevens, “Amazon Snips Prices on Other Sellers’ Items Ahead of Holiday Onslaught,” The Wall Street Journal, November 5, 2017